GN Focus | Germany

A vote on the economy

Next September’s elections could have a strong impact on business in Germany and in Europe

By Thomas Billinghurst | Features Writer

Published: 00:01 November 9, 2012

Image Credit: Corbis

Chancellor Angela Merkel and her former finance minister Peer Steinbrück will face off in the 2013 general election

Amid global economic turmoil and an ever-deepening Eurozone crisis, Christian Democratic Union (CDU) leader and German Chancellor Angela Merkel has taken on the unenviable task of keeping the 17-member European Union (EU) alive. However, the vanguard of European austerity faces a tough election in Germany come September — one that could change the face of Europe’s leading economy.

Merkel’s most prominent challenge comes from the newly elected Socialist Democratic Party (SDP) leader Peer Steinbrück, known for his quick wit and acerbic tongue. Steinbrück has previously served as Merkel’s finance minister, in the grand CDU-SDP coalition in 2005-09.

The SDP has cause for optimism. Humiliating electoral defeats for Merkel’s CDU to the SDP in May in North Rhine Westphalia — Germany’s most populous state — and to the Greens in Baden-Württemberg in March 2011 show there is everything to play for in next year’s general election. The scent of change is in the air.

Criticism over EU crisis

Merkel is not having an easy time getting on with her neighbours. French President François Hollande, the most vociferous critic of Merkel’s handling of the euro crisis in Brussels, accuses her of wasting time and devising overly ambitious plans for the EU.

Steinbrück echoed Hollande’s sentiments in the Bundestag on October 18, in his first exchange with Merkel since assuming the leadership of the SDP. He particularly criticised Merkel for her handling of the Greek crisis. Such forceful rhetoric is likely to be one prominent weapon Steinbrück will wield over Merkel in the run-up to elections.

Significantly enough, though Merkel’s austerity measures are under close scrutiny, the German public are mostly behind her, says Dr Peter Matuschek, head of the Department of Political and Social Research at Forsa Institute, Germany’s leading market research and opinion polling company. “The great majority of Germans are convinced that Merkel is steering the country well through the crisis — 54 per cent approve of her handling of the euro crisis. And 64 per cent believe her austerity policy on the euro crisis is adequate and should be maintained.”

Dr Wolfgang Muno, Professor of Political Science at Erfurt University, tells GN Focus, “The problem for Steinbrück and the SDP is that the [politico-economic] situation is good in Germany,” so points of attack and criticism are limited. The unemployment rate is the lowest since reunification two decades ago, at 6.8 per cent — it’s more than 25 per cent in Spain and Greece, 15.9 per cent in Portugal and 10.6 per cent in France, according to Eurostat data.

As it stands

IMF data shows Germany stands fourth in the world in terms of gross domestic product (GDP). It was the leading European entity with GDP of $3.6-billion (about Dh13.2 billion) in 2011. To put that into perspective, French GDP stood at $2.7 billion, the UK at $2.4 billion and Spain at $1.4 billion for the same period.

“There is not really a longing for change in Germany at the moment — 46 per cent of Germans would prefer Angela Merkel if they were able to elect the Chancellor directly. Peer Steinbrück has a backing of 35 per cent,” Matuschek says.

Merkel’s conservatives were at their highest in more than three years in a leading opinion poll published on October 26. The results point to no outright winner in September’s election, as reported by Reuters.

The closely watched Politbarometer poll at ZDF TV, a public service German television broadcaster, indicates neither Merkel’s centre-right coalition nor a centre-left alliance would win a majority. The CDU and Bavarian sister party, the Christian Social Union (CSU), rose a percentage point to 39 per cent in the poll. SDP, the main centre-left opposition, fell two points to 29 per cent in the ZDF poll, while the Greens, the SDP’s preferred coalition partner, rose a point to 13 per cent, Reuters reports. With 42 per cent the two parties would fall short of a majority.

Issues at stake

Neil Prothero, Senior European Analyst at the Economist Intelligence Unit, outlines some of the main issues at stake for competing parties in the build-up to the 2013 election: “The CDU has hinted it may seek to cut marginal tax rates from 2014, while environmental taxes are an obvious target for the Greens, and there could be moves by the SDP to implement modest tax rises on wealth. All parties will face constitutional requirements for structural budget balance by 2016, but the underlying position of public finances is decent enough that any tax reforms will be modest in scale.”

The economy is the most important issue for the German electorate. The only thing that could change opinion as it stands would be a breakdown of the EU — this would have a massive impact.

Should the worst-case scenario occur, and the Eurozone breaks up, Prothero tells GN Focus how it would affect the election: “After a protracted period in which many voters reluctantly accepted official calls to support the unpopular Eurozone bailout, the collapse of the bloc would see public cynicism towards mainstream party politics reach unprecedented levels. Smaller parties and fringe groups would record significant gains in opinion polls.”

Prothero adds: “Despite much rhetoric, there is still a broad, cross-party pro-European stance in Germany. This is not surprising, as the benefits to Germany, political and economic, from the bloc far outweigh those from going it alone.

“The Steinbrück-led SDP appears to have shifted positions, from previously rejecting a pan-European bank bailout to calling for a Eurozone resolution fund for ailing institutions. In general he is — in line with his party — more pro-European than Merkel, yet he is also critical of radical policy proposals such as immediate Eurozone-wide debt mutualisation.”

Key coalitions

The outcome of the general election in September next year will hinge on coalitions, as is becoming the norm in Germany. The evolution of German politics has seen numerous parties entering the Bundestag, leading to a Scandinavian-like system where majority governments are a rarity and coalitions are de riguer. “It’s very probable that we could have five parties in parliament next year as in Scandinavia, where it’s not easy to find a majority,” says Dr Muno.

Three scenarios are possible: a CDU-SDP grand coalition, an SDP-Greens coalition or a CDU-Free Democrats (FDP) coalition.

The most probable scenario seems to be a grand coalition between CDU and SDP led by Angela Merkel, Matuschek says. But Steinbrück has adamantly ruled out the possibility of another left-right pact, regardless of how the parties fare in the vote for the Bundestag in 2013. “We want to oust this government. We want to make sure it isn’t just partially replaced but completely replaced, with an SDP-Greens government,” he told a news conference in late September.

“An SDP-Greens coalition would implement the greatest changes,” says Dr Muno. The SDP would look to pass a basic income bill. In line with their Marxist origins, the main focus of SDP domestic policy advocates the affluence of the populace through a basic salary.

“The Greens would make a big push towards eradicating nuclear power in favour of renewable energy sources. You saw that in the Baden-Württemberg election, where the Greens won because of the nuclear crisis in Japan,” he says. They also stand to benefit from government investment in alternative energy.

The integration of Turkey into the EU greatly divides the mainstream parties’ foreign policy stances, and could play out with unknown ramifications after the election. “The idea has been blocked by the CDU, while the SDP has always been in favour. An SDP government, coalition or otherwise, would move to promote the entry of Turkey into the EU,” Dr Muno says.

“No one knows what the result would be of including Turkey. On one hand, a thriving Turkish economy could well boost the EU’s resources. On the other, it is politically tricky with Turkish involvement in Syria. Many feel the EU would therefore be directly involved in conflicts in the Middle East. And no one knows exactly how democratic Turkey is.”

The consensus emerging from German political circles is that the election result will only be the start of more negotiations, agreements and compromises between parties vying for the top seat in the Bundestag.